Interim Results
Northgate PLC
09 January 2003
9 January 2003
NORTHGATE PLC
INTERIM RESULTS FOR THE HALF YEAR ENDED 31 OCTOBER 2002
Northgate plc ('Northgate', 'the Group'), the UK's leading specialist in light
commercial vehicle hire, announces its interim results for the half year ended
31 October 2002.
• Turnover up 21% to £164.8m (2001: £136.5m) *
• Pre-tax profit up 16% to £18.8m (2001: £16.2m) *
• Earnings per share up 16% to 21.3p (2001: 18.3p) *
• Dividend increases 5% to 4.9p per share (2001: 4.65p per share)
• Fleet increases by 11% to 44,900 vehicles since 30 April 2002
• Fleet utilisation remains above 90%
• Fualsa contributes pre-tax profits of £0.5m in first four months of
ownership
• Board strengthened through the promotion of Phil Moorhouse to
Managing Director UK Rental and the appointment of Gerard Murray as
Finance Director
* includes contribution from Fualsa which is accounted for as a joint
venture
Michael Waring, Chairman, commented:
'Northgate has enjoyed an excellent six months trading in which it has continued
to expand its network in the UK and, importantly, taken its first step into
continental Europe.
'Once again, by delivering on all of the key performance indicators, continuing
to generate strong cash flow and maintaining fleet utilisation rates, Northgate
has demonstrated the ability of its business model to thrive even in adverse
economic conditions. We have achieved growth organically, with a steady stream
of new locations in the UK. We have also laid the foundations for further
significant growth both in the UK through our extended network and in Europe
through our investment in Fualsa in Spain.
'Trading since the period end is in line with the Board's expectations and we
look forward to another excellent year.'
Full statement and results attached.
For further information, please contact:
Northgate plc 01325 467558
Steve Smith, Chief Executive
Phil Moorhouse, Managing Director UK Rental
Hogarth Partnership Limited 020 7357 9477
Andrew Jaques
Tom Leatherbarrow
CHAIRMAN'S STATEMENT TO SHAREHOLDERS
Introduction
The six months to 31 October 2002 have seen us move ever closer to achieving our
aim of doubling the size of our UK business by 2004. In addition, in July 2002
we made our first step into continental Europe with the purchase of 40% of the
equity of Fualsa, Spain's second largest van rental business.
Results
Excluding the contribution from Fualsa, turnover increased by 17% to £159.7m
(2001: £136.5m), operating profit was higher by 9% at £25.3m (2001: £23.3m),
while pre-tax profits rose 13% to £18.3m (2001: £16.2m). Our 40% shareholding
in Fualsa contributed positively to earnings during the initial four months
period of ownership with Northgate's share of turnover being £5.1m, operating
profit £0.8m and profit before tax £0.5m.
The overall earnings per share, including the contribution from Fualsa, was
21.3p (2001: 18.3p), an increase of 16%.
Gearing has increased to 189% (30 April 2002: 170%), principally as a result of
the investment in Fualsa and the acquisition of Target Vehicle Rental Limited
('Target') in October 2002. The underlying cash flows in the business remain
strong with EBITDA up by 14% to £74.5m, (2001: £65.6m), and interest cover
improving to 3.6 times (2001: 3.3 times).
Dividend
In line with our policy of progressive dividends, the Board has declared an
interim dividend of 4.9p (2001: 4.65p) per share, an increase of 5%, payable on
7 February 2003 to shareholders on the register at the close of business on 17
January 2003.
Operational Review
United Kingdom and Ireland
Since 1 May 2002, we have continued to expand our network and now operate from
70 locations. We have opened new branches in Andover, Grimsby, Northampton and
Telford. In addition, the acquisition of Target on 1 October 2002 brought us 6
new locations in the key M40 corridor area.
These new locations, coupled with the continued national trend to outsourcing,
for which our Norflex product is ideally suited, have enabled our fleet to grow
organically by 3,300 vehicles. When added to the 1,100 vehicles acquired as a
result of purchasing Target, aggregate fleet growth in the period since 1 May
2002 was 11%, with a total fleet size of 44,900 as at 31 October 2002.
In our five year Strategy for Growth, announced in 1999, we estimated we would
need a network of 100 UK locations to operate successfully a 50,000 vehicle
fleet. Experience to date, however, has shown that we are achieving more
vehicles per location than we originally envisaged and that, as a consequence,
we can operate a 50,000 vehicle fleet from a smaller number of outlets.
The period under review has also seen continued tight control of the fleet, with
utilisation averaging just over 90%, stable hire rates and profits being
achieved from the sale of our used vehicles throughout the period. We anticipate
that these levels of performance will continue in the second half of the year.
As noted in the Operational Review in our last annual report we continue to
develop complementary non-rental products. Whilst remaining ancillary to the
core business of van rental they will, over time, produce a contribution to our
profits and help further differentiate us from our competitors. In particular,
'Norfleet Vehicle Monitoring', our telematics product, has increased its brand
awareness and we have installed over 300 units since launch.
Continental Europe
On 17 July 2002 we announced the purchase of 40% of the equity of Fualsa, the
second largest van rental company in Spain, for a cash consideration of £9.8m.
In addition we have an option to acquire a further 40% by 31 May 2004 and the
remaining 20% by 31 May 2006.
The contract was deliberately structured as a staged acquisition to give us a
low risk entry into this new market and to allow us the opportunity to work
closely alongside the current owners to better understand the business prior to
taking full control.
Fualsa currently operates from 6 locations and has a fleet of 10,800 vehicles,
up 8% in the four months since our investment.
To date, we are well satisfied with Fualsa's performance and greatly look
forward to its progress in the future.
Management appointments
The Board recognises the considerable progress Northgate has made in recent
years and is mindful of the opportunities which exist in the future to grow the
business significantly. We have therefore decided that it is appropriate to
strengthen the executive management in order to allow Northgate to consolidate
on the progress made and to ensure we are well prepared to take advantage of
future opportunities.
With immediate effect, Phil Moorhouse, currently Northgate's Finance Director,
will be promoted to the new position of Managing Director UK Rental. He will
assume responsibility for the Group's commercial vehicle hire operations in the
UK together with the development of our non-rental products. His appointment
emphasises the importance attached to, and opportunities available for, the
continued future growth of our UK business.
We welcome Gerard Murray, formerly Chief Executive and Finance Director of Reg
Vardy plc, who today joins the Board of Northgate as Finance Director. He brings
to Northgate a wealth of experience in the automotive industry and related
sectors. We have no doubt that he will make a positive contribution to the
future development of the company. There are no additional matters to be
disclosed pursuant to paragraphs 6.F.2 (b) to (g) of the Listing Rules.
Current Trading and Outlook
Trading since the end of the period is in line with expectations and we remain
confident of delivering the target set in our five year Strategy for Growth.
Finally, as our management reorganisation has illustrated, we remain firmly of
the view that the UK market is far from mature and that we can continue to grow
our UK business at an attractive rate well beyond April 2004. This growth,
together with the expansion of the new continental European operation and
further development of complementary non-rental products, will form the basis of
our future Strategy for Growth on which we will update shareholders in our year
end report.
Michael Waring
Chairman
Consolidated Profit and Loss Account
for the 6 months ended 31 October 2002 Six Six Twelve
months to months to months to
Notes 31.10.02 31.10.01 30.4.02
(Unaudited) (Unaudited)
£000 £000 £000
Turnover : Group and share of joint venture 1 164,786 136,466 277,829
Less: share of joint venture's turnover (5,074) - -
Group turnover 159,712 136,466 277,829
Group operating profit 1 25,344 23,307 45,055
Share of joint venture's operating profit 833 - -
26,177 23,307 45,055
Interest payable, net - group (7,046) (7,135) (13,381)
- joint venture (312) - -
Profit on ordinary activities
before taxation 18,819 16,172 31,674
Tax on profit on ordinary activities - group 2 (5,764) (5,062) (9,953)
- joint venture (130) - -
Profit attributable to shareholders 12,925 11,110 21,721
Dividends - non-equity preference shares (13) (13) (25)
- equity ordinary shares (2,965) (2,811) (9,094)
Profit transferred to reserves 9,947 8,286 12,602
Earnings per ordinary share - basic 3 21.3p 18.3p 35.8p
Diluted earnings per ordinary share 3 21.2p 18.2p 35.6p
Dividends per ordinary share 4.90p 4.65p 15.0p
All current and prior year trading relates to continuing operations.
Statement of Total Recognised Gains and Losses
for the 6 months ended 31 October 2002 Six Six Twelve
months to months to months to
31.10.02 31.10.01 30.4.02
(Unaudited) (Unaudited)
£000 £000 £000
Profit for the period 12,925 11,110 21,721
Prior period adjustment - 865 865
Total gains recognised 12,925 11,975 22,586
Summary Consolidated Balance Sheet
31 October 2002
Notes 31.10.02 31.10.01 30.4.02
(Unaudited) (Unaudited)
£000 £000 £000
Fixed assets
Vehicles for hire 360,728 312,787 325,116
Other fixed assets 21,721 18,106 19,666
Goodwill on acquisition of subsidiaries 1,362 146 142
Investment in joint venture :
share of gross assets 27,731 - -
share of gross liabilities (21,897) - -
goodwill on investment less amortisation 4,597 - -
10,431 - -
394,242 331,039 344,924
Current assets
Stocks 9,155 6,782 8,028
Debtors 62,446 54,318 54,925
Cash at bank and in hand 23,342 29,803 26,125
94,943 90,903 89,078
Creditors: amounts falling due within one year 172,644 149,946 149,754
Net current liabilities (77,701) (59,043) (60,676)
Total assets less current liabilities 316,541 271,996 284,248
Creditors: amounts falling due after more than
one year 163,235 133,592 142,031
Provisions for liabilities and charges 6,292 5,821 5,170
147,014 132,583 137,047
Capital and reserves 6 147,014 132,583 137,047
Consolidated Cash Flow Statement
for the 6 months ended 31 October 2002 Six Six Twelve
months to months to months to
Notes 31.10.02 31.10.01 30.4.02
(Unaudited) (Unaudited)
£000 £000 £000
Net cash inflow from operating activities 4(i) 68,387 64,405 127,057
Returns on investments and servicing of finance (6,864) (6,754) (13,265)
Taxation (4,982) (986) (7,250)
Capital expenditure (69,323) (55,351) (109,910)
Acquisitions 4(ii) (14,212) (717) (6,150)
Equity dividends paid (6,275) (5,813) (8,631)
Management of liquid resources 62 71 39
Financing 24,640 14,859 31,585
(Decrease)/increase in cash for the period (8,567) 9,714 13,475
Reconciliation of Net Cash Flow
to Movement in Net Debt
(Decrease)/increase in cash for the period (8,567) 9,714 13,475
(Increase)/decrease in borrowings (3,080) 9,195 1,735
Capital element of vehicle related hire
purchase payments 75,385 61,765 133,091
Cash inflow from new hire purchase agreements (96,925) (85,814) (166,258)
Cash withdrawn from deposit (62) (71) (39)
Change in net debt resulting from cash flows (33,249) (5,211) (17,996)
Hire purchase obligations acquired with subsidiaries (11,547) (228) (228)
Movement in net debt for the period (44,796) (5,439) (18,224)
Opening net debt (232,899) (214,675) (214,675)
Closing net debt (277,695) (220,114) (232,899)
Unaudited Notes
1. Segmental Analysis
All trading activities relate to the business of vehicle hire. The group
operates in all material respects in the United Kingdom and turnover relates to
customers in the United Kingdom. The joint venture operates in all material
respects in Spain.
2. Tax
The charge for taxation for the six months to 31 October 2002 is based on the
estimated effective rate for the year.
3. Earnings per ordinary share
The calculation of basic earnings per ordinary share in respect of the six
months to 31 October 2002 is based on the profit attributable to equity
shareholders of £12,912,000 (31.10.01 - £11,097,000) (30.4.02 - £21,696,000) and
the weighted average of 60,627,899 (31.10.01 - 60,532,803) (30.4.02 -
60,560,376) ordinary shares in issue (excluding those shares held by an employee
trust in connection with the Long Term Incentive Plan and the All Employee Share
Scheme).
Diluted earnings per ordinary share have been calculated on the basis of the
earnings described above and assume that 154,500 shares remaining exercisable
under the Goode Durrant Share Option Scheme had been fully exercised at the
commencement of the relevant period, such that the weighted average number of
shares is 60,911,999 (31.10.01 - 60,872,393) (30.4.02 - 60,876,578) (including
those shares held by an employee trust in connection with the Long Term
Incentive Plan and the All Employee Share Scheme).
4. Notes to the Cash Flow Statement
(i) Reconciliation of operating profit to net cash inflow from operating
activities
Six Six Twelve
months to months to months to
31.10.02 31.10.01 30.4.02
(Unaudited) (Unaudited)
£000 £000 £000
Group operating profit 25,344 23,307 45,055
Depreciation and amortisation 49,153 42,266 86,916
Increase in working capital (6,110) (1,168) (4,914)
Net cash inflow from operating activities 68,387 64,405 127,057
(ii) Acquisitions
Cash outflow on investment in joint venture (see note 5(i)) 10,118 - -
Cash outflow on acquisition of subsidiary undertakings (see note 5(ii)) 4,094 717 746
Cash outflow on acquisition of a business - - 5,404
14,212 717 6,150
5. Acquisitions
(i) Joint Venture
In July 2002 the group acquired a 40% share in Furgonetas de Alquiler SA
('Fualsa'), a business in Spain, for a cash consideration of £10,118,000
including goodwill of £4,674,000. The investment is accounted for as a Joint
Venture. The goodwill on the investment in Fualsa is capitalised and written
off over a period of twenty years being the estimated useful economic life.
£000
Book value of net assets acquired 5,444
Goodwill 4,674
Acquisition cost (including fees) 10,118
Satisfied by cash 10,118
(ii) Subsidiary undertakings
On 1 October 2002 the group acquired the entire issued share capital of Target
Vehicle Rental Limited ('Target') for a cash consideration of £3,360,000
including goodwill of £1,362,000. On 1 July 2002 the group acquired the entire
issued share capital of K.W. Sadler Car Hire (Cleethorpes) Limited ('KWS') for a
cash consideration of £1,134,000 including goodwill of £200,000. Both
acquisitions have been accounted for using acquisition accounting.
The goodwill on the acquisition of Target is capitalised and written off over a
period of twenty years being the estimated useful economic life. The impact of
these acquisitions on the results for the period is immaterial.
Target KWS Total
£000 £000 £000
Provisional fair value of net assets acquired 1,998 934 2,932
Goodwill 1,362 200 1,562
Acquisition cost (including fees) 3,360 1,134 4,494
Satisfied by cash 3,360 1,134 4,494
Cash equivalents in subsidiary undertakings purchased (373) (27) (400)
Cash outflow on acquisition of subsidiary undertakings 2,987 1,107 4,094
6. Reconciliation of movements in shareholders' funds
Six Six Twelve
months to months to months to
31.10.02 31.10.01 30.4.02
(Unaudited) (Unaudited)
£000 £000 £000
Profit for the period 12,925 11,110 21,721
Dividends (2,978) (2,824) (9,119)
9,947 8,286 12,602
Issue of ordinary share capital (net of expenses) 20 5 153
Net increase in shareholders' funds 9,967 8,291 12,755
Opening shareholders' funds
As previously reported 137,047 123,427 123,427
Prior period adjustment - 865 865
As restated 137,047 124,292 124,292
Closing shareholders' funds 147,014 132,583 137,047
As a result of the adoption of Financial Reporting Standard 19 Deferred
Taxation, a prior period adjustment of £865,000 in respect of deferred tax
assets was incorporated in the financial statements to 31 October 2001 and 30
April 2002.
7. Basis of preparation
The interim results have been prepared on the basis of the accounting policies
set out in the last annual report and accounts together with the new policy
adopted during the period relating to the investment in the joint venture.
The figures for the year ended 30 April 2002 are extracted from the audited
accounts for that year which have been delivered to the Registrar of Companies,
and on which the auditors issued an unqualified report and which did not include
a statement under section 237(2) or (3) of the Companies Act 1985.
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